Application of Presumption of Advancement on the family home

What is the presumption of advancement?

In Australia, the general rule is that in circumstances where property is transferred between people who do not have any of these relationships, it gives rise to a presumption of a resulting trust in favour of the donor (the person who transferred the property).

A resulting trust means that the recipient of the property holds the property ‘on trust’ for the donor.

In some instances however, the relationship of the parties can mean that a ‘presumption of advancement’ applies, and in turn, the recipient is assumed to be the full legal owner of the property rather than simply a trustee.

The presumption of advancement is an equitable principle where a person puts property in the name of their spouse, child or to another person to whom they stand ‘in loco parentis’. The property is transferred with the intention of transferring both the beneficial interest in the property as well as the legal title.

Presumption of advancement v resulting trust

The presumption of advancement applies to transfers of real property and purchases of real property by people who stand in particular relationships. In Australia the presumption of advancement only applies to transfers of property from:

1. Husbands to their wives[1];
2. Male fiancés to their female fiancés[2]; and
3. From parents to their children[3].

These relationships as listed at (a) to (b) above are interestingly only ‘one-way’, in that the respective case law was determined in an era where differing social values saw that only a male would be transferring property to his wife, and not to that of a mistress, nor that of a wife and/or woman ever transferring property to a man with the intention of same being considered a ‘gift’.

Today, the Court’s position remains undecided as to equity presumes a gift was intended by the donor. The Court’s discussions have traditionally circulated around the donor having an equitable obligation to see the advancement of the recipient[4], a recognition of the donor’s maintenance of legal duties[5], natural love and affection between the donor and recipient[6], as well as probability of the donor’s intention[7].

Case law has seen the Courts keep the pool of relationships which give rise to a presumption of advancement quite small. In cases involving transfer of real property from sibling to sibling, the Court in McCregor v Nicol held that the transfer constituted one of a resulting trust, [8] that is, held on trust for the unnamed party. This was similarly applied by the Court in the case of Z & Z which involved transfer of real property from a parent to their children in-law.[9] This is because the equitable law around resulting trusts assumes that the recipient of the property was not intended to receive the property beneficially, whilst the presumption of advancement doctrine presumes there was an intention that the recipient not only receives the legal title but also receives the property as a gift by the donor: the donor no longer has any interest in it.

Recent case law concerning married couples

Due to the nature of the presumption of advancement being applicable to a particular type of relationship, it is common that the real property being transferred is that of a family home. In circumstances where a spouse has creditors (usually in the context of insolvency), there is a chance that the presumption of advancement could apply to prevent creditors claiming an entitlement to the property.

The recent 2021 case of Commissioner of Taxation v Bosanac (No 7) considered the argument of a resulting trust vs the presumption of advancement, The case concerned a wife being the sole registered owner of the home. The ATO[10] had a a money judgment against her husband and had sought to enforce the judgment against the home, on the basis that (the ATO argued) the husband had a 50% interest in the home by way of a resulting trust.

The facts of the case were:

• the husband and wife jointly obtained a bank loan to purchase the home that was secured by a registered mortgage over the property;
• when the property was purchased, the wife was registered as the sole owner;
• they also borrowed further monies secured by the mortgage that was purportedly used by the husband to conduct share trading;
• they resided in the home for several years;
• they had shared bank accounts;
• there was some sharing of other property assets; and
• no suggestion was made that the wife was registered as sole owner with a view to the husband avoiding creditors.

The ATO in this case argued that there was a resulting trust resulting in the husband being a 50% beneficial owner of the house by way of the fact that the husband had contributed to 50% of the purchase price as a joint borrower under the home loan. The wife argued that the presumption of advancement applied (ie: that she was the sole legal and beneficial owner) and that the onus was on the ATO to prove that there was a resulting trust.

The Court observed that the registration of the wife as sole owner could have been made for many reasons but the evidence as to the intent of either party was limited. The Court, as a result, held that the ATO had not provided sufficient evidence of the intention by the husband to retain a beneficial interest in the property.

Recommendations

If you are a married couple where one party may have commercial risks, it would be necessary to ensure that prior to transferring your home and/or a property into the ownership of your spouse’s name, that all financial documents are in order.

The parties could organise mortgage payments to be made from that spouse’s income particularly, whilst disclosures on loan applications should be consistent with the recipient spouse being the sole beneficial owner of the property. To solidify the transfer giving rise to a presumption of advancement, the transfer of property could be subject to a Deed at the time of purchase, outlining the intentions of the transfer as being that of a gift.

If you are unsure of your position, we would recommend seeking legal advice in order to protect the family home prior to making any transfers of property.

 How we can help you

JHK Legal regularly act for individuals, providing advice on property transfers as well as acting for individuals during property transaction.

The above determination in particular raises a reminder for parties who may be experiencing financial hardship or risk, to seek legal advice prior to transferring the family home to a spouse, child or other relative, as the implications of this transfer may not give rise to the presumption of advancement.

If you are seeking to transfer your family home as a gift, rather than the transfer giving rise to a resulting trust, please reach out to the JHK Legal team to obtain advice on your rights, interests and obligations on such a transaction.

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Written by Elyzia Menounos, Lawyer

[1] Re Eykyn’s Trusts (1877) 6 Ch D 115; Nelson v Nelson (1995) 184 CLR 538, 600 (McHugh J). Not de facto spouses: Calverley v Green (1984) 155 CLR 242.

[2] Wirth v Wirth (1956) 98 CLR 228.

[3] Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353; Nelson v Nelson (1995) 184 CLR 538; Brown v Brown (1993) 31 NSWLR 582.

[4] Bennet v Bennet (1879) 10 Ch D 474.

[5] Pecore v Pecore [2007] 1 SCR 795.

[6] Sayre v Hughes (1868) LR 5 Eq 376.

[7] Wirth v Wirth (1956) 98 CLR 228, 237.

[8] McGregor v Nicol [2003] NSWSC 332.

[9] Z & Z (2005) 34 Fam LR 296; (2005) FLC 93–241; [2005] FamCA 996 [32].

[10] Australian Taxation Office.